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Crystallex International Corp. v. Bolivarian Republic of Venezuela

United States District Court, District of Columbia

March 25, 2017

CRYSTALLEX INTERNATIONAL CORPORATION, Petitioner,
v.
BOLIVARIAN REPUBLIC OF VENEZUELA Respondent. Re Document Nos. 1, 11, 14

          MEMORANDUM OPINION

          RUDOLPH CONTRERAS United States District Judge.

         Granting Petitioner's Petition to Confirm Arbitral Award; Denying Respondent's Motion to Vacate Arbitral Award; Denying Petitioner's Motion for a Pre-Judgment Bond as Moot

         I. INTRODUCTION

         Petitioner Crystallex International Corporation (Crystallex)-a Canadian company-invested in gold deposits in Venezuela in 2002. Over a period of several years, a series of actions by the Venezuelan government deprived Crystallex of the benefit of its investment. In accordance with a bilateral investment treaty (BIT) between Canada and Venezuela, Crystallex pursued its grievances against Venezuela before an international arbitration tribunal (the Tribunal). The Tribunal awarded Crystallex just over $1.2 billion. Crystallex now requests that this Court confirm the award in accordance with the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), which has been incorporated into United States law through the Federal Arbitration Act (FAA). Although the FAA does not allow Venezuela to re-litigate each point of the Tribunal's decision, Venezuela raises various challenges and argues that the award should be vacated. Because none of Venezuela's arguments suffice to vacate or modify the award under the New York Convention, the Court grants Crystallex's petition to confirm the award and denies Venezuela's motion to vacate. Additionally, Crystallex has moved for a pre-judgment bond, but because it confirms the award, the Court denies that motion as moot.

         II. BACKGROUND

         A. The Bilateral Investment Treaty

         In 1996, Canada and Venezuela entered into a bilateral investment treaty (BIT) to promote economic cooperation and investment opportunities between the two nations. See generally Agreement Between the Government of Canada and the Government of the Republic of Venezuela for the Promotion and Protection of Investments (BIT), ECF 2-2, Ex. 2. The BIT required both nations to, inter alia, give investments by investors of the other nation[1] “fair and equitable treatment, ” BIT, art. II(2), and refrain from unlawfully expropriating such investments, BIT, art. VII(1).

         As part of the BIT, Canada and Venezuela gave their “unconditional consent to the submission of a dispute to international arbitration” in accordance with various provisions. BIT, Art. XII(5). Arbitration was provided for disputes “between one [nation] and an investor of the other [nation], relating to a claim by the investor that a measure taken or not taken by the [nation] is in breach of [the BIT], and that the investor . . . has incurred a loss or damage by reason of . . . that breach.” BIT, Art. XII(1). Tribunals hearing claims under the BIT were instructed to apply the BIT itself and “applicable rules of international law.” BIT, Art. VII(7). The BIT specified that arbitrations would proceed under either the International Centre for the Settlement of Investment Disputes (ICSID) rules, the ICSID Additional Facility Rules, or the United Nations Commission on International Trade Law (UNCITRAL) rules. BIT, Art. XII(4).

         B. Factual Background

         Crystallex, a Canadian corporation, entered into the Mine Operating Contract (MOC) in 2002 with the Corporación Venezolana de Guayana (CVG).[2] Arbitral Tribunal's Award (Award) ¶¶ 3, 18, ECF No. 2-1, Ex. 1. Under the MOC, Crystallex acquired the rights to develop the gold deposits at Las Cristinas in Venezuela. Award ¶ 18. The MOC had an initial duration of twenty years and the possibility of an extension to forty years. Award ¶ 20. The MOC placed obligations on both parties, including requiring Crystallex to “bear all responsibility for the development of the Las Cristinas project and all of its associated costs.” Award ¶ 18. Over the following years, Venezuelan officials repeatedly noted Crystallex's compliance with the terms of the MOC. Award ¶ 402.

         Before it could begin operations at Las Cristinas, Crystallex needed various permits, including an Authorization to Affect National Resources from the Venezuela Ministry of Environment (the permit). Award ¶ 21. Obtaining the permit was a lengthy process that required Crystallex to obtain a land occupation permit, submit a feasibility study, and submit an environmental impact study. Award ¶ 21. Between 2003 and 2007, Crystallex completed many of these prerequisites. Award ¶¶ 22-41. On May 16, 2007, the Ministry of Environment informed Crystallex that it was prepared to “hand over” the permit once Crystallex paid a bond and fees. Award ¶ 43; see also Award ¶ 561 (“Once the Bond has been posted, checked, and found to be compliant by this Office, [the permit] . . . will be handed over.”). Crystallex posted such a bond and paid the required fees. Award ¶ 41. On June 14, 2007, Crystallex announced to the market that it had fulfilled the requirements to receive the permit. Award ¶ 42.

         However, despite the Ministry of Environment's earlier statements, the permit did not issue. After a delay of almost a year, the Ministry of Environment officially denied Crystallex the permit on April 14, 2008. Award ¶¶ 44, 589-90. Later in 2008, a press release from the Venezuelan government indicated that Las Cristinas would be operated and exploited by the Venezuelan government. Award ¶ 678. Crystallex responded by submitting its Notice of Dispute under the BIT on November 24, 2008. Award ¶ 53. In early 2009, then-Venezuelan-President Hugo Chávez announced “this year the Venezuelan State has taken over the exploitation and control of the gold deposits of Las Cristinas, ” Award ¶ 605. After two more years, during which Crystallex continued to bear the costs associated with control of the Las Cristinas site, the CVG officially rescinded the MOC (1) “for reasons of opportunity and convenience” and (2) due to “the cessation of activities for more than one (1) year.” Award ¶¶ 59, 606.

         C. The Arbitration

         Crystallex initiated arbitration proceedings against Venezuela in 2011 under the BIT. Award ¶ 64. Crystallex claimed that Venezuela had breached the BIT by (1) denying Crystallex's investments “fair and equitable treatment” and (2) expropriating Crystallex's investments. ¶ 184. The arbitration proceeded under the ICSID's “Additional Facility” rules.[3]Award ¶ 1. The parties selected three arbitrators and engaged in two years of briefing and discovery. Award ¶¶ 66-68, 70-110. Hearings began in Washington, D.C. in 2013 and concluded in 2015. Award ¶¶ 110, 157. In April of 2016, the three arbitrators unanimously issued a decision, Award at 1, affirming their jurisdiction over the claims at issue, finding that Venezuela had breached the BIT, and awarding Crystallex $1.202 billion, with interest, Award ¶ 961.

         A brief summary of the Tribunal's findings follows. As a threshold matter, Venezuela argued to the Tribunal that the Tribunal lacked jurisdiction over Crystallex's claims because they were contract-not treaty-claims. Award ¶¶ 459-64. The Tribunal rejected this argument and concluded that the claims at issue were treaty claims. Award ¶¶ 471-83.

         The Tribunal identified two separate violations of the BIT. First, the Tribunal found that Venezuela had violated the guarantee of “fair and equitable treatment” found in Article II(2) of the BIT[4] by: reneging on its commitment to issue Crystallex the permit, “engag[ing] in arbitrary conduct in denying the Permit and rescinding the MOC, and committ[ing] several acts lacking transparency and consistency.” Award ¶ 623; see also generally Award ¶¶ 487-623. Second, the Tribunal concluded that Venezuela had breached Article VII(1) of the BIT's prohibition on expropriation by seizing the resources at Las Cristinas to develop itself, including by rescinding the MOC.[5] See generally Award ¶¶ 636-718.

         The Tribunal then addressed the appropriate measure of compensation. See generally Award ¶¶ 719-960. The Tribunal determined that it would apply the “full reparation” principal to calculating compensation, as described in the Chorzów case before the Permanent Court of International Justice. Award ¶¶ 846-47. The Tribunal averaged together the results of two different calculations to award Crystallex $1.202 billion. Award ¶ 917.

         The first method of calculating damages that the Tribunal considered was the stock market method, “a comparative valuation methodology that seeks to assess the damage to Crystallex's stock price by reference to the evolution of stock prices for other, similarly placed, gold mining companies not affected by Venezuela's expropriatory measures.” Award ¶ 804; see generally Award ¶¶ 804-817. By setting the “last clean date” as June 14, 2007, Award ¶ 891, and the “valuation date” as April 13, 2008, the method yielded a damages amount of $1.295 billion.[6]

         The second method the Tribunal considered for calculating damages was the market multiples method, which “estimates the value of an asset or company by examining the market valuation of companies holding properties of similar characteristics.” Award ¶ 901; see also Award ¶ 793-803. By comparing Crystallex's market valuation to that of seventy-three comparator companies, Award ¶ 902, and adjusting that valuation based on the expected size of the gold reserves at Las Cristinas, Award ¶ 793, the method yielded a damages amount of $1.109 billion.[7] Award ¶ 905.

         The Tribunal concluded that the damages amounts suggested by each method[8] were “largely consistent with each other” and averaged their results, to arrive at its damages award of $1.202 billion. Award ¶ 917. The Tribunal rejected Crystallex's request for $180 million in consequential damages to compensate it for its losses after the valuation date of April 13, 2008. Award ¶ 894. Because the Tribunal denied Crystallex these consequential damages rejected various assumptions favorable to Crystallex that Crystallex requested the Tribunal consider in assessing damages, the Tribunal felt that the damages amount it awarded “may err on the conservative side.”[9] Award ¶ 918.

         D. Procedural History

         In April of 2016, Crystallex petitioned this Court[10] to confirm the arbitral award. Petition Confirm Arbitral Award (Petition), ECF No. 1. The New York Convention, as incorporated into the FAA, permits parties to arbitrations governed by the New York Convention to seek confirmation of the award in a United States district court. 9 U.S.C. § 207. Venezuela moved instead to vacate the award. See generally Bolivarian Republic of Venezuela's Motion Vacate Arbitral Award (Mot. Vacate), ECF No. 11. The motion to vacate and the petition to affirm now being fully briefed, the matter is ripe for resolution by this Court.[11]

         III. LEGAL STANDARD

         First, this Court addresses its jurisdiction. Jurisdiction is proper under the Foreign Sovereign Immunities Act (FSIA). Under 28 U.S.C. § 1330, “[t]he district courts shall have original jurisdiction . . . of any nonjury civil action against a foreign state . . . with respect to which the foreign state is not entitled to immunity either under sections 1605-1607 of this title or under any applicable international agreement.” Jurisdiction over actions against foreign states is thus limited to the enumerated exceptions to immunity in the FSIA. See Saudi Arabia v. Nelson, 507 U.S. 349, 355 (1993). Because of this limitation, a court must “satisfy itself that one of the exceptions applies” at “the threshold of every action in a District Court against a foreign state.” Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 493-94 (1983).

         Here, the exception in § 1605(a)(6) applies. Section 1605(a)(6) grants jurisdiction over actions “to confirm an award made pursuant to an arbitration agreement governed by an international treaty.” Chevron Corp. v. Ecuador, 795 F.3d 200, 203 (D.C. Cir. 2015). In this action, Crystallex seeks to confirm an award made pursuant to the BIT and governed by the New York Convention, 9 U.S.C. §§ 201 et seq. The D.C. Circuit has held that actions to confirm arbitration awards under the New York Convention fall into exception § 1605(a)(6) “by its terms.” Creighton Ltd. v. Gov't of State of Qatar, 181 F.3d 118, 123 (D.C. Cir. 1999). Here, Crystallex has met the requirements of § 1605(a)(6), which requires the petitioner to show that “(1) a foreign state has agreed to arbitrate; (2) there is an award based on that agreement; and (3) the award is governed by a treaty signed by the United States calling for the recognition and enforcement of arbitral awards.” Chevron Corp. v. Ecuador, 795 F.3d 200, 204 (D.C. Cir. 2015) (internal quotation marks and citations omitted). Crystallex has produced the BIT, the arbitral award against Venezuela under the BIT, and refers to the New York Convention. Cf. Chevron, 795 F.3d at 205. This Court thus has jurisdiction because the BIT demonstrates Venezuela's agreement to arbitrate, and the award is based on the BIT and governed by the New York Convention.[12]

         Second, the Court addresses the appropriate standard of review. In general, courts apply a deferential standard when reviewing arbitral awards. “Consistent with the ‘emphatic federal policy in favor of arbitral dispute resolution' . . . the FAA affords the district court little discretion in refusing or deferring enforcement of foreign arbitral awards.” Belize Social Development Ltd. v. Gov't of Belize, 668 F.3d 724, 727 (D.C. Cir. 2012) (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 631 (1985)).

         This deferential standard is akin to the deferential standard used when reviewing domestic arbitral awards. See Oxford Health Plans LLC v. Sutter, 133 S.Ct. 2064, 2068 (2013) (“Under the FAA, courts may vacate an arbitrator's decision ‘only in very unusual circumstances.' . . . If parties could take ‘full-bore legal and evidentiary appeals, ' arbitration would become ‘merely a prelude to a more cumbersome and time-consuming judicial review process.'” (first quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942 (1995), then quoting Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008))); see also BG Grp., PLC v. Republic of Argentina, 134 S.Ct. 1198, 1208 (2014) (“[T]he fact that the document” containing the arbitration agreement “is a treaty” does not affect the level of deference because “[a]s a general matter, a treaty is a contract, though between nations”). The Supreme Court has described the deferential standard as allowing vacatur of an award not if “the panel committed an error-or even a serious error” but “only when [an] arbitrator strays from interpretation and application of the agreement and effectively dispense[s] his own brand of industrial justice.” Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, 671-72 (2010) (internal quotation marks and citations omitted); see also Id. at 696 (“Courts . . . do not sit to hear claims of factual or legal error by an arbitrator as an appellate court does in reviewing decisions of lower courts. . . . This Court, therefore, may not disturb the arbitrators' judgment, even if convinced that serious error infected the panel's award.” (internal quotation marks and citations omitted)). Similarly, the D.C. Circuit has held that “[a]s long as the arbitrator is even arguably construing or applying the contract and acting within the scope of [her] authority, that a court is convinced [she] committed serious error does not suffice to overturn [her] decision.” Kanuth v. Prescott, Ball & Turben, Inc., 949 F.2d 1175, 1180 (D.C. Cir. 1991) (quoting United Paperworkers Int'l Union, AFL-CIO v. Misco, Inc., 484 U.S. 29, 38 (1987)).

         In addition to the deference due the arbitral decision, a district court “may refuse to enforce the award [under the New York Convention] only on the grounds explicitly set forth in Article V of the Convention.” TermoRio S.A. E.S.P. v. Electranta S.P., 487 F.3d 928, 935 (D.C. Cir. 2007) (citation omitted); see also Int'l Trading & Indus. Inv. Co. v. DynCorp Aerospace Tech., 763 F.Supp.2d 12, 20 (D.D.C. 2011) (“Confirmation proceedings are generally summary in nature” because “the New York Convention provides only several narrow circumstances when a court may deny confirmation of an arbitral award.” (citing Zeiler v. Deitsch, 500 F.3d 157, 169 (2d Cir. 2007)). “The party resisting confirmation . . . bears the heavy burden of establishing that one of the grounds for denying confirmation in Article V applies.” Gold Reserve Inc. v. Bolivarian Republic of Venezuela, 146 F.Supp.3d 112, 120 (D.D.C. 2015) (citations omitted), appeal docketed, No. 15-7158 (D.C. Cir. Dec. 30, 2015).

         Here, Venezuela alleges that Article V(1)(c) and V(2)(b) of the New York Convention warrant vacatur, as does the Tribunal's manifest disregard of the law. Mindful of the narrow scope of its review, the Court addresses each in turn.

         IV. ANALYSIS

         A. Article V(1)(c)-Excess of Powers

         Venezuela argues that the Tribunal exceeded the scope of Venezuela's consent to arbitrate by addressing matters the BIT did not consign to arbitration. Article V(1)(c) of the New York Convention provides that a court may refuse to confirm an award if the award “deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration.” Venezuela argues that the Tribunal stepped beyond the bounds of the BIT in two ways-first, by considering claims that were actually contract violations rather than treaty violations; and second, by using valuation methods that departed from the BIT's instructions.

         Before considering each of these challenges, this Court must determine the amount of deference to grant the Tribunal's determination of its scope. Although, as discussed previously, district courts generally defer to the conclusions of arbitral tribunals, Venezuela argues that questions of “arbitrability”-or the scope of the parties' consent to arbitrate-are an exception to the standard rule and should receive de novo review. See, e.g., Mot. Vacate at 27-29, ECF No. 11; Venezuela's Resp. Crystallex's Pet. Confirm Arbitral Award (Opp'n Confirm) at 19-22, ECF No. 15; Venezuela's Reply Mem. P. & A. Supp. Mot. Vacate Arbitral Award (Reply Vacate) at 5-10, ECF No. 25. In support, Venezuela cites a line of Supreme Court precedent that identifies a distinction in the presumptive standard of review for questions of “arbitrability” and more procedural questions. See generally BG Group PLC v. Republic of Argentina, 134 S.Ct. 1198 (2014) (holding that issues of arbitrability presumptively receive de novo review, while procedural jurisdiction questions presumptively receive deferential review). That line of cases however, including BG Group, dealt only with the presumptive standard when the treaty itself was silent as to whether the tribunal or the court should decide the tribunal's jurisdiction. Id. at 1206. BG Group left intact the principle that “it is up to the parties to determine whether a particular matter is primarily for arbitrators or for courts to decide.” Id. at 1206. In other words, when the parties explicitly agree that the tribunal should decide the scope of its own inquiry, then courts should review that determination deferentially. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995) (“[A] court must defer to an arbitrator's arbitrability decision when the parties submitted that matter to arbitration.”).

         Determining that the parties submitted questions of arbitrability to the tribunal requires clear and unmistakable evidence. Id. at 944. In this case, such unmistakable evidence exists in the form of Venezuela's explicit consent in the BIT to the ICSID Additional Facility Rules.[13]BIT, art. XII(4). The ICSID Additional Facility rules provide that “[t]he Tribunal shall have the power to rule on its competence.” ICSID Arbitration (Additional Facility) Rules, art. 45 (2006), http://icsidfiles.worldbank.org/icsid/icsid/staticfiles/facility/partd-chap08.htm. Thus, by consenting in the BIT to proceed under the ICSID Additional Facility rules, Venezuela clearly and unmistakably assigned the question of arbitrability to the Tribunal, and this Court will deferentially review the Tribunal's determination as to its own jurisdiction.[14] This conclusion is in harmony with prior interpretations of this precise Canada-Venezuela BIT. See Gold Reserve Inc. v. Bolivarian Republic of Venezuela, 146 F.Supp.3d 112, 121 (D.D.C. 2015) (deferring to the tribunal's determination of its jurisdiction because the BIT incorporated the ICSID Additional Facility Rules), appeal docketed, No. 15-7158 (D.C. Cir. Dec. 30, 2015).

         To dispute this conclusion, Venezuela argues that Canada's intervention in a different case (United Mexican States v. Cargill, Inc.), before a different court (a Canadian tribunal), based on a different bilateral investment treaty (NAFTA), demonstrates the “shared expectation[] of the contracting parties” that the tribunal's determination of arbitrability be reviewed de novo. Reply Vacate at 7-10, ECF No. 25. In Cargill, the attorney general of Canada intervened to argue that the tribunal's determination that it had jurisdiction over “up-stream” damages[15] should be reviewed under a “correctness” standard, which Venezuela argues is akin to de novo review. Reply Vacate at 8 (citing United Mexican States v. Cargill, Inc., 2011 ONCA 622 (Can. Ont. C.A. 2011), http://www.ontariocourts.ca/decisions/2011/2011ONCA0622.htm). However, the description of Canada's position in the opinion is very sparse, stating only: “[t]he appellant submits . . . that the appropriate standard of review is the correctness standard. Canada, an intervener on the appeal, supported this position.” Cargill, 2011 ONCA 622 ¶ 27. Missing from the opinion-or Venezuela's briefing-is any explanation of Canada's reasons for supporting the correctness standard. Were they based in Canadian law? The text of NAFTA, which was the treaty at issue in Cargill? Nor does Venezuela offer any explanation as to how this Court should balance the contemporaneous evidence of Canada's intentions, as demonstrated by the text of the BIT, against its litigation position years later. Without more, Venezuela has not adequately established the intent of Canada as a party to the BIT with Venezuela.

         Because the question of the jurisdiction of the Tribunal was assigned to the Tribunal to decide, this Court will deferentially review the Tribunal's conclusions. In such a deferential review, a court “should give considerable leeway to the arbitrator, setting aside his or her decision only in certain narrow circumstances.” First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995); cf. Schneider v. Kingdom of Thailand, 688 F.3d 68, 74 (2d Cir. 2012) (holding that when the parties “clearly and unmistakably agreed to arbitrate issues of arbitrability” the objecting party “is not entitled to an independent judicial ...


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